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Shipping & Energy ETFs Gaining From Red Sea Attack

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The recent Red Sea attacks, primarily attributed to the Houthi rebels in response to Israel's war in Gaza, have significantly impacted global maritime activities and economic sectors. These attacks have targeted various commercial vessels, including oil tankers and cargo ships, with drones, rockets, and even direct assaults, causing major shipping companies to reroute their vessels to avoid the Red Sea.

The Red Sea is a crucial global shipping lane, handling about 12% of world trade. The attacks have particularly targeted merchant ships, causing a drop of more than 40% in tanker traffic through the Bab al-Mandab Strait at the southern end of the Red Sea. This situation is expected to persist through February, with only around 30 tankers, including crude oil and fuel carriers, entering the strait recently, significantly lower than the average over the previous three weeks.

The series of attacks could curtail global shipping capacity by 20%, according to experts, in a fresh blow to supply chains that could reignite inflationary pressure. However, as a result of the supply disruptions, a few segments of the stock market gained last week. We have highlighted them below:

Shipping

Attacks by the Iran-aligned Yemeni Houthi group on vessels in the Red Sea have forced hundreds of ships to take safer but longer routes, delaying the delivery of oil cargo. Companies like BP and Equinor ASA, along with major shippers such as Euronav NV, have re-routed their vessels away from the Red Sea to avoid these escalating risks.

Nearly 15% of the world’s shipping traffic has been disrupted by shipping companies avoiding the Suez Canal route due to increased risk in the Red Sea. This has resulted in a spike in shipping ETFs. SonicShares Global Shipping ETF (BOAT - Free Report) rose 10.6% last week. BOAT provides pure-play exposure to the global maritime shipping industry by tracking the Solactive Global Shipping Index. It holds  48 stocks in its basket and charges 69 bps in annual fees. The ETF has amassed $38.9 million in its asset base (read: Why to Bet on Shipping ETFs Now).

Breakwave Dry Bulk Shipping ETF (BDRY - Free Report) has gained 5.2%. It is the only freight futures ETF that is exclusively focused on the dry bulk shipping market through a portfolio of near-dated freight futures contracts on dry bulk indices. Breakwave Dry Bulk Shipping ETF has accumulated $52.6 million in its asset base and charges a higher annual fee of 3.50%.

Energy

Oil price posted the largest weekly gain of 3% in two months as the Red Sea attacks resulted in supply disruptions. This led to a rally in energy ETFs. While most ETFs in the space saw strength, Invesco Dorsey Wright Energy Momentum ETF (PXI - Free Report) was the biggest beneficiary, gaining 4.1%.

Invesco DWA Energy Momentum ETF tracks the Dorsey Wright Energy Technical Leaders Index, which is designed to identify companies that are showing relative strength (momentum). The fund has 39 stocks in its basket with AUM of $104.9 million. It charges 60 bps in annual fees and has a Zacks ETF Rank #3 (Hold).

Invesco Dynamic Oil & Gas Services ETF (PXJ - Free Report) has risen 3.6%. It follows the Dynamic Oil Services Intellidex Index, which thoroughly evaluates companies based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value. It holds 31 stocks in its basket. Invesco Dynamic Oil & Gas Services ETF has accumulated $92.8 million and charges 63 bps in fees per year. It has a Zacks Rank #2 (Buy)  (read: Oil & Energy ETFs Likely to Rebound in 2024: Here's Why).

SPDR S&P Oil & Gas Equipment & Services ETF (XES - Free Report) and Invesco Energy Exploration & Production ETF (PXE - Free Report) were up 2.7% and 2.5%, respectively. Both the ETFs have a Zacks Rank #2.

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